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Are you ready to trade CFDs? Ask yourself these three questions first

by , 12 March 2014

If you want to try trading contracts for difference (CFD), you need to find out if it's for you or not. Trading CFDs is risky. It takes up time. And you need to be very disciplined to increase your chances of success. So is CFD trading for you? Read on to discover if trading CFDs is for you…

What is a CFD?

Contracts for difference are over the counter (OTC) derivative products, the team at FSP Invest in the Ultimate Contracts for Difference Guide explain. CFDs don’t trade through an exchange, like single stock futures, but through a bank or company that provide CFD trading.

These CFD providers create a market for CFDs to trade.

A CFD trade is an arrangement between you and the market maker to exchange the difference between the closing price of the contract and the opening price of the contract.

So are you ready to trade CFDs? Answer the following questions…

Do you understand the risks of trading CFDs?

When you trade CFDs, you can lose more than you originally put down.

If the idea of losing all your invested capital and possible more leaves you running for the hills, you shouldn’t trade CFDs.

Even though using stop losses can limit your losses, there are times when a stock can ‘gap through’ it.

Do you have the time to trade CFDs?

When you trade CFDs, it isn’t the same as buying shares. You need to have enough time to check your positions and keep an eye on the market.

At a minimum you should do this once a day.

Can you keep your emotions at bay when you trade?

If you can’t keep a lid on your emotions when you trade CFDs, stay well.

Successful trading all comes down to discipline. You need to know when to cut your losses. And never become emotionally attached to a trade.

So there you have it, three questions that can determine whether CFD trading is for you.

Are you ready to trade CFDs? Ask yourself these three questions first
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